NEW YORK (MONEY) - For some time, I've been recommending PepsiCo over Coke. That's not a particularly radical viewpoint -- the majority of analysts rate Pepsi a buy.

And the stock has delivered, outperforming Coke by a wide margin. Since early 2003, Pepsi stock has gained 58 percent, while Coke is up 10 percent.

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From FORTUNE • The Pepsi Machine • Can Coke's CEO reignite the stock?

Recently, however, some analysts have begun wondering whether Pepsi has peaked. And other, value-oriented stockpickers have begun considering Coke as a possible bargain.

How do the prospects of the two stocks compare at this point? And which is a better choice to fill the consumer staple slot in a broadly diversified stock portfolio?

The most recent earnings reports tell the story. Last week, PepsiCo announced a nearly perfect report card. Adjusted for an extra week that fell in the fourth quarter, earnings were up 13 percent on a 10 percent gain in revenues.

PepsiCo's targets for 2006 are equally solid. Earnings are projected to grow nearly 11 percent, and cash flow could top $6.2 billion. Half of that can be used for share repurchases, while most of the rest will be available for larger-than-usual capital investment.

By contrast, Coca-Cola reported a fourth-quarter revenue increase of only 7 percent. Net income, after various adjustments, was more or less flat.

Coca-Cola also has ample free cash flow and plans to buy back large amounts of stock, but not as much as Pepsi.

The chief reason for the difference in performance is that Pepsi has diversified much more aggressively than Coke. That has proven essential to long-term success, because the market for carbonated drinks in North America is growing very slowly.

Both companies have diversified into non-carbonated drinks -- Gatorade and Aquafina bottled water for PepsiCo, Minute Maid and Dasani bottled water for Coke. And both companies are expanding internationally.

But PepsiCo has also grown its snack food business. In fact, Frito-Lay now outsells PepsiCo beverages in North America. In addition, Pepsi plans to expand into snacks for health-conscious consumers. Snack foods ultimately offer considerably more potential growth in North America than beverages do.

PepsiCo stock has now risen enough that Coke looks a bit cheap. At $40.74, Coke (Research) offers a 2.7 percent dividend and trades at less than 18 times earnings. That's not a screaming bargain for a company with only a projected 10 percent long-term earnings growth rate. But it's not a bad price for one of the world's best brand names.

Pepsi (Research) has an 11.5 percent-plus long-term growth rate, and a 1.8 percent yield. At $57.60, the shares trade at 19.5 times this year's earnings.

Here's how I size up the two stocks. Pepsi isn't as cheap as it once was. But investors should try to minimize portfolio turnover. Pepsi is growing well and looks as though it has several more years of such results ahead of it.

I might hesitate to commit new money to Pepsi, but I generally believe in hanging on to a successful stock unless its strategy runs into trouble.

I agree that Coke looks underpriced by historical standards. Expectations are modest, and any positive surprises would probably result in a higher valuation. Only trouble is, I don't see a reason for Coke's results to surprise on the upside, and the stock price isn't really cheap enough to be a screaming bargain.

Also:The Pepsi Machine: How Pepsi outmaneuvered Coke by looking beyond the cola wars.

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